Naira devaluation its impact on import and export exchange rates are important economic tools because they affect the price of every nations imports and exports, as. Devaluation is a deliberate reduction in the value of a countrys currency in relation to the currencies of other countries. Businessworld analysis of the exchange rate and devaluation several economic theories posit that devaluation will most likely improve a nations trade balance. Pdf currency devaluation and nigerian economic growth 2000. Such a level may be reached during 2021, but the risks of this happening in 2020 are low, he stated. Revisiting a policy of currency devaluation in african countries. A file photo of central bank of nigeria governor, godwin emefiele. Pdf assessing the impact of nigerias naira depreciation on. Whereas devaluation is deliberate, depreciation of currency is caused by some macroeconomic factors. This study examines the effects of the nigerian currencys devaluation and.
Devaluation definition of devaluation by merriamwebster. The central bank of nigeria cbn said fridays decision to peg the exchange rate of the naira at n380 to the dollar is not a devaluation of the nigerian currency. Agric minister says persistent importation of commodities devalue the naira. Only a bakers dozen of countries did not devalue their currencies at least once during the period 194770 japan, switzerland, and the. Devaluation is the deliberate lowering of the exchange rate while revaluation is the deliberate rise of the exchange rate. Jun 28, 2016 abujaeven with the currency flexibility policy recently invoked by the central bank of nigeria, cbn, to enable market variables determine the value or otherwise of the niara, president. Jan 07, 2016 analysts and traders expect that the central bank in nigeria, africas largest oil exporter, will devalue the naira as the country deals with the blowback of the oil price crash. Implications of the continued devaluation of the naira. The pressure in the foreign exchange market we have witnessed in the last few weeks was not caused by demand for foreign currency to buy inputs for production. Foreign investors and economists had called for a naira devaluation for. Mexico shows a similar experience from the peso devaluation in december 1994 that also transmitted a shock to the asset side of bank balance sheets resulting in a financial sector crisis that curtailed lending for development.
The impact of devaluation of naira on nigerias balance of payments abstract the objective of this study is to access the impact of devaluation of the naira on nigerias balance of payment. Scholarly work especially of african extraction has a bias for the fact that devaluation is an instrument being. However, since 1970, the balance of payment has swunged at one time or the other from a. Effectiveness of naira devaluation on economic growth in nigeria. May, 2016 buhari bows to imf pressure, to devalue naira 290 to dollar after months of insisting that he had no plans to devalue the naira, president muhammadu buhari has caved to pressure to change course. The main intention behind central banks decision is to prevent rapid depletion of the countrys foreign exchange reserves. Currency devaluation may be a laudable economic tool in the developed economies. N380 forex rate not devaluation of naira, says emefiele. Nigerian nairas devaluation may drive investors to bitcoin. The recent history of the nairaus dollar exchange rate shows that 20 per cent overvaluation of the naira, in terms of fair value, is associated with devaluation. Proffering solution to smes and devaluation of naira.
The number of those for or a gainst naira devaluation keeps rising. Cbn governor, godwin emefiele, reacts to devaluation of. Devaluation definition is an official reduction in the exchange value of a currency by a lowering of its gold equivalency or its value relative to another currency. Since nigerias exports mainly consist of oil, it is important to separate the above relationship between oil and nonoil exports. We allow for capital and adjustment costs in capital accumulation and realistic taxes in an environment with wage rigidity. Pdf this paper investigated the effect of currency devaluation on the economic growth of nigeria. According to the graph below, the currency fluctuation appears to lead to naira depreciation. Sep 05, 2017 the dominant interbank rate of the naira was immediately set by the banks at almost the same level usd 1 ngn 365 as opposed to ngn 367, amounting to a significant devaluation to well below the value of the official rate still fixed at usd 1 ngn 305. For the benefit of those of us who do not know much about economy. Nigeria down to two exchange rates naira devaluation.
Exchange rate, devaluation, inflation rate, manufacturing outputs. In other words, naira depreciation or devaluation appears as a response to decline recorded in exports. This is approved for students in accountancy, business, computer science, economics, engineering, arts. Get free research paper on the effect of naira devaluation on small and medium scale enterprises in nigeria project topics and materials in nigeria. Nigerian naira to remain stable at the foreign exchange market in 2020, analysts have predicted. Devaluation and its economic effects nigeria as a case. Once the market peg is removed on monday, the value of naira will crash on international forex platforms. According to imf and world bank, devaluation is referred to as instrument for fiscal equalization and stability, particularly in the developing nations where several countries are indebted to these financial institutions. The g20 challenges and opportunities ahead, retrieved from. We calibrate the example to the recent experience of spain.
Analysts rule out naira devaluation in 2020, say cbn may. Buhari bows to imf pressure, to devalue naira 290 to dollar. Nigerias naira set to devalue as market trading begins reuters. This study, however, focuses on the influence of the reduction in oil price and the devaluation of naira on economic growth in nigeria. Nigeria faces bleak 2016 as currency devaluation looms. Nigerian naira tumbles 30 percent after peg removed. Nov 26, 2018 currency devaluation and revaluation refer to opposite changes to a countrys official currency in comparison to other currencies. The nigerian government is thus in dilemma of the effect of further devaluation of naira as. In short, the structuralists argue that the devaluation will worsen inflation, in this sense. Currency devaluation and manufacturing output growth in nigeria. National and regional analysis of the impact of devaluation and foreign exchange. Devaluation devaluation is the process by which a country reduces the value of its own currency in a fixed exchange rate system thereby making its currency weaker. Essay about effect of devaluation of naira on price level.
Buhari bows to imf pressure, to devalue naira 290 to. Exchange rates are important economic tools because they affect the price of every countrys imports and exports, as well as the value of foreign investment. Its currency adjustment, not naira devaluation, says cbn. Bank allays fears of naira devaluation the free zone channel. In malawi, a 71% devaluation of the kwacha in 1994 diminished the dollar value of total commercial bank credit by 60%. In import dependent economies, policy makers and business stakeholders are often concerned about severe consequences of currency volatility, especially. Pdf the fundamental intent of the study is to estimate the implication and affiliation flanked by economic development and naira devaluation. In the opinion of aiya 2014, devaluation of currency became popular in. Nigerias central bank finally throws in towel on naira peg. Devaluation is definitely policy movement in the right direction as the economy was. Jan 26, 2015 however, the only people that may remain safer from the naira devaluation action are the ones who held on to assets rather than the naira. Jun 25, 2010 the naira is the nigerian form of currency. However, there are different schools of thought with divergent explanations of how devaluation improves or dampens a countrys economic fortune.
This paper explores that available way forward to the controversial debate on the effect of naira devaluation and justification for. Introduction according to imf and world bank, devaluation is referred to as instrument for fiscal equalization and stability. The government of nigeria and other experts are kicking against the. The influence of the reduction in oil price and the. Some economic considerations for nigerian currency devaluation 1. I dont like the returns i get from the cbn concerning the devaluation of the naira. Consequently, there have been calls for or against the devaluation of naira, with each side of the divide providing reasons for its position. On devaluation of the naira the guardian nigeria news. Effects of currency devaluation on the performance of. Businessworld analysis of the exchange rate and devaluation. Open letter to buhari over planned naira devaluation.
The naira devaluation crisis can be traced back to the massive crash in oil price in 2015 and shocking discovery that theres no cash in the nations reserve. Naira exchange rate depreciation and domestic inflation in. Report on the effect of nairas devaluation on the agricultural value. Since the devaluation of the naira there has been an inflow of secondhand goods from abroad such as clothing, foot wear, and vehicles.
The naira devaluation will lead to a chain of reactions, many of which may not have the appropriate results, because the nigerian economy mainly depends on oil. Analysts at united capital see the cbn harmonising the naira rates rather than devaluation this year. Currency devaluation and economic growth the case of ethiopia. Before the dominance of the oil sector, particularly between 1960 1970, the balance of payment was less erratic. Devaluation of currency is a macroeconomic fiscal policy that bothers on deliberate reduction in the value of home currency with the aim of maximizing gain in trade able items aiya, 2014. Central bank of nigeria cbn governor godwin emefiele are not relenting. Devaluation of naira may drive investors towards bitcoin. Devaluation of the naira in the past never led to reduction in trade deficit, as imports have continued to rise in response to the countrys weak disposition towards research, development. Jpmorgan expects nigeria to devalue naira by 10% by end. It is actually a way of forcing out the speculators whose activities have been.
Ninety percent of her export is made up of oil and only about loyv is made up of non oil. The naira devaluation debate has been on in the last 23 months. Devaluation of currency is a macroeconomic fiscal policy that bothers on. Jun 19, 2016 nigerias naira is expected to lose around a third of its value when market trading begins on monday, bringing to an end the central banks muchcriticised fixed exchange rate system.
Pdf the implication of naira devaluation to the nigerias. For the last two years, naira has managed to lose double its value in relation to the dollar two years ago you could buy one dollar at the black market for n186 today, you can purchase the same dollar for n365. Devalued naira too hot for traders seeing further currency slide. Jun 14, 2016 nigerias central bank said it will allow the naira exchange rate to be marketdriven, setting the stage for a devaluation of as much as 36 percent when a new trading system comes into effect. Mixed reactions trail naira devaluation the free zone channel. N324 to a dollar in the parallel market and n199 at the official market. Devaluation of currency became popular in nigeria when babangidaled administration in 1986 instituted the. People who have houses, lands, stocks, domiciliary accounts, foreign bank accounts and so on are the ones who would hardly feel the pain of naira devaluation. Recently, with the spiralling decline in the price of crude oil in the global market, there is a renewed call by the imf and some experts on a further devaluation of the naira. Nigeria is finally down to what seems likes just two exchange rates. Can the economists in the house enlighten us on naira devaluation, the implications and the ripple effects and why the president is reluctant in doing a simple language pls. Home business proffering solution to smes and devaluation of naira. In this paper i analyze the effects of devaluation on gdp per capita growth in ethiopia using time series data from 1980 to 2010. Nigerian naira tumbles 30 percent after peg removed reuters.
Currency devaluation and economic growth the case of ethiopia abstract devaluation of currency has an ambiguous effect on economic growth of a country. Nigeria central bank says market fundamentals do not. The user has requested enhancement of the downloaded file. A not so brief history of the fall and fall of the. The value of naira as against dollar and pounds sterling started to deteriorate, in 1970, it was a naira to 1. If the current trend continues, it will truly give any investor a pause before investing in nigeria because it appears that at the current rate of volatility of the naira there is no investment in nigeria that will produce a good return on investment. Introduction nigerian is basically a monoproduct economy. The free fall of naira to dollar has really affected importation and exportation budget and contributed to the sharp increase in commodities in the nigerian market. To put in a more appalling way, worth less than that of others.
Nigerian naira 19952020 data 20212022 forecast quote. Buhari bows to imf pressure, to devalue naira 290 to dollar after months of insisting that he had no plans to devalue the naira, president muhammadu buhari has caved to. In other words, a devaluation is a decline in the countrys standard of living. Jpmorgan said it expected nigeria to devalue its currency by around 10% against the dollar by the end of june after a sharp oil price tumble ramped up. Currency devaluation and manufacturing output growth in. Impact of devaluation of naira in the nigerian economy.333 286 1293 245 1294 60 952 649 181 558 75 460 312 75 1417 1474 350 869 1396 759 1481 1097 680 493 832 750 904 681 709 823 1232